Israel Governor signals conditions are ready for a rate cut, provided October CPI and Q3 growth remain moderate

ISRAEL - In Brief 06 Nov 2025 by Sani Ziv

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Bank of Israel Governor Amir Yaron hinted at a possible interest-rate cut ahead of the bank’s November 24 decision. Speaking at a conference on Tuesday, he said the September CPI, which fell by 0.6%, was “a step in the right direction.” Yaron noted that the shekel’s appreciation and the expected decline in reserve call-ups are helping to ease inflationary pressures. However, he cautioned that an improved geopolitical environment could stimulate demand and push prices higher. He added that the upcoming October CPI and third-quarter GDP data will guide the Bank’s next policy move. Meanwhile, the Central Bureau of Statistics released data showing that the average wage in Israel increased 4.7% year-over-year in September, while real wages (adjusted for inflation) rose 2.2%. This reflects a stronger underlying trend in wage growth, likely driven by tight labor-market conditions. In parallel, business sentiment improved moderately in October, showing early signs of optimism following the ceasefire. Our take: Despite slightly stronger wage data, we expect the Bank of Israel to begin cutting rates in November 2025. Third-quarter GDP is projected to show a sharp rebound, mainly reflecting a correction after the Q2 contraction, when economic activity was partially shut down. However, when smoothing out the volatility caused by the war, underlying trends do not point to rapid growth. The Bank of Israel’s state-of-the-economy index indicates an average increase of only 0.2% per month. A CPI increase below 0.5% and growth figures broadly in line with expectations would pave the way for a rate cut in November. A significantly higher-than-expected CPI or exceptionally strong growth f...